Debt-to-Income Ratio
The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly home loan payment after all your other monthly debt obligations have been fulfilled.
Understanding your qualifying ratio
Typically, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing costs (including loan principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt. Recurring debt includes payments on credit cards, auto/boat payments, child support, and the like.
For example:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, we offer a Loan Qualifying Calculator.
Guidelines Only
Remember these are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
Selectplus Lending can walk you through the pitfalls of getting a mortgage. Give us a call: (818)645-7035.